Iceland PM Says EU Entry Is Best Option

The EU has held out the prospect of speedy accession talks and entry as early as 2011.

Iceland's prime minister said on Tuesday accession to the European Union and adoption of the euro was the best way to revive an economy crippled by the collapse of its banks and its crown currency.

Two days after her new centre-left government was formed, Prime Minister Johanna Sigurdardottir said she wanted to pass a number of bills in the 10 weeks until April 15 elections, including proposed changes to the country's constitution to allow EU membership talks after the vote.

"In my opinion the best option is still to join the European Union and adopt the euro," she told a news conference held jointly with her Finance Minister Steingrimur Sigfusson.

Iceland's economy, long seen as one of the best investment prospects in Europe, collapsed in a matter of days in October under the weight of billions of dollars of foreign debt incurred by its banks and laid bare by the global financial crisis. Last month the centre-right government of Geir Haarde fell, the first direct victim of that international financial downturn.

Sigurdardottir is a member of the Social Democratic Alliance, which has teamed up with Sigfusson's Left-Green Party to form a new minority coalition. The Social Democrats favour EU entry while the Left-Greens are cautious, but have said they could back a referendum on starting talks.

Iceland has long been cautious about entering the EU, but support for the idea has grown since its economy collapsed last year under the weight of billions of dollars of foreign debts, racked up by its now nationalised banks.

The EU has held out the prospect of speedy accession talks and entry as early as 2011.

NORWAY OPTION

Sigfusson said he would hold talks with his Norwegian counterpart Kristin Halvorsen this week on currency cooperation.

"I have been interested in this option for a long time and as it happens the Norwegian finance minister is coming on Friday and of course this is one of the matters that we will discuss," Sigfusson said.

But Bank economists have said closer links between the Norwegian and Icelandic crowns make little financial sense in the light of Iceland's possible EU membership application.

Both Sigurdardottir and Sigfusson said they would wait for the recommendations of a committee on the economic options open to Iceland, expected on April 15, before making any decisions.

"The most important tasks are still to make changes to support the homes of this country better, and to try and get the wheels of both the banks and the economy turning again," she said.

Sigurdardottir said she had not yet had a definite reaction from central bank governor David Oddsson whom she has asked to resign as part of a plan for a revamped central bank with a different leadership. The two had talked over telephone, Sigurdardottir said.

"I hope he will see that this (his resignation) is a significant part of rebuilding faith in Iceland's economy," she said.

The government said on Sunday it planned to take control of monetary policy decisions for now while it reformed the central bank.

Oddsson, a former prime minister, has been vilified in local media and by angry protesters who complain he did not do enough to stave off the financial crisis. The crisis forced Iceland to take a $10 billion IMF-led rescue package.